Variation on the Lease - Rentcharges

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    Variation on the Lease - Rentcharges

    Hi, we are trying to sell our leasehold property (house) which we've owned for 5 years and feel somewhat let down by our solicitor who is (we feel) applying a principle that does not apply to us. Some key information; Our home is a leasehold house with 994 years left on the lease. We have a management company, to which we pay service charges for maintenance of shared spaces (carpark, landscaping etc). The charges have never really been an issue to us; we seem to get what we pay for and refunds when we overpay in good time. We have a buyer who has requested that 'the lease is varied in respect of the estate rent charge for the purpose of collecting estate cost due to the management company'. From what I have read online, this concern around rentcharges and the fears around it are only really the case for freehold properties that pay ground rent, and don't then pay their bills, as there are limited means and legal rights for Freeholders to contest the service charges without it escalating quickly and a lease being applied to their home, and the only way to hopefully resolve it is through the courts. However, Leaseholds have the protection of two tiers of tribunals that any service charges a leaseholder feels is unfair will hear the case before it gets to the point where court orders get involved. I fear our solicitor hasn't fully understood our situation as isnt doing much reassurance to our buyer who has read some horror stories online, none of which apply to our situation. Our solicitor has written to our management company to ask how the process of lease variations works and the cost. Our buyer has said they expect us to meet the costs of this. I guess, firstly am I right in thinking this situation of the rentcharge fears dont apply to us? Secondly, is it fair we should pay for this lease variation process - if the management company even agree to this (my suspicion is they wont agree because the fears of the buyer arent the same as our situation) ? Thank you. I fear this is going to significantly hold up our conveyancing process when we were almost at contract exchange stage.

    #2
    I have a never come across a case where a leasehold property is subject to a rentcharge. I think I need to how exactly what is involved.

    Comment


      #3
      Thank you very much for coming back to me, I’ll try my best to explain.

      Indeed – I am aware rent charges are usually applied to Freehold properties that need to pay a service charge, and that no new rent charges should have been applied since the Rentcharge Act of 1977. I know that for (freehold) new builds they are often applied where a service charge needs to be collected to maintain shared spaces, and this is the position we are in - however we are a leasehold house.

      We pay a service charge to a management company in order to maintain shared communal areas (carparks, landscaping etc) which is proportionate to the size of property on the development, and you only pay for what is required in terms of maintenance, including a small sinking fund charge, to fund future capital investment. We pay quarterly and are invoiced in due time for these charges. Importantly, we as leaseholders have the right to challenge these service charges, and are protected under a two-tier tribunal, unlike Freeholders. Our management companies’ terms state that they must invoice leaseholders for each charge (so payments can’t stack up in the background and you not know about them), see: https://www.gov.uk/leasehold-propert...other-expenses.

      We also pay a small sum each year (“X” pounds) into a ‘community company’ the setting up of which was enforced by the planning authority for community initiatives for social wellbeing.

      I’ll provide some details from our management information pack, title deeds, and contract in the hope you may come to the same conclusion we have;
      • In the definitions and interpretations of the lease, “Rentcharges” are defined as the Nominal Rentcharge and the Variable Rentcharge reserved under Clause 6.
      • Clause 6 defines the “Nominal Rentcharge” as meaning a perpetual yearly estate rentcharge of “X” pounds per annum which shall be forever charged and issuing out of the Property for the purposes of enforcing the estate covenants.

      (The “X” pounds mentioned above have an actual value in the lease but I’ve redacted it for data protection, but importantly to note it is the same sum that we pay to the community company, therefore we assume that they are one and the same).
      • Clause 6 defines the “Variable Rentcharge” as meaning the perpetual yearly estate rentcharge of an amount equal to the Variable Rentcharge payable pursuant to part B of Schedule 3.

      The contract then goes on to say that ‘in the event of default, the Management Company may carry out the actions of section 121 Law of Property Act 1925’…etc…the following standard text I’m sure you are familiar with.

      Part B Schedule 3 goes on to define “Variable Rentcharge/Service Charge” as a percentage of the Net Estate Service Costs or such [lower] percentage as shall be determined from time to time by the Management Company acting reasonably and notified to the Lessee from time to time.

      So, to put this into layman’s terms, as we understand it – there are two rentcharges held against all properties on the development; the first is fixed and costs “X” pounds per year and goes to the community company; the second is variable, and in Part B Schedule 3 becomes interchangeable with Service Charges, the costs of which are determined by the management company year on year, depending on the costs of estate maintenance. If people don’t pay their charges then after due process (challengeable at tribunal) the management company can reclaim costs outstanding.

      When we challenged why this rentcharge was an issue, our conveyancer said to the effect ‘it is less so the issue of having a rentcharge but the practice in which a landlord can recoup these costs – they can apply charges to the property, not bill you for them and then if they go unpaid they can apply a lease to the property, exclude you from the property to recoup costs and hold as collateral, with the property owner only able to resolve this in court’.

      We understand this sounds very scary, however our point of view, which I feel our conveyancer has missed completely is that the above ‘horror story’ case (Roberts vs Lawton) was a Freehold property, which is not subject to the same rights and protections as a Leasehold property (whereby all charges have to be invoiced, you can challenge, and there is a two-tier tribunal). Apparently, our buyer is concerned that the risk is great and that future mortgage lenders (the current buyer purports to be a cash buyer) would struggle to accept the risk and therefore the property may become un-mortgageable. I would note we have a mortgage, and have re-mortgaged and not once was this issue a concern, nor was it deemed a risk to be pointed out by our solicitor when we purchased the property originally, notably at the same solicitor firm.

      Our buyer is requesting that the lease is varied in respect of the estate rent charge for the purpose of collecting estate cost due to the management company. I am not clear exactly what is been asked here, and our conveyancer hasn’t been clear what exactly she means by this, but as I say it’s regarding the way in which they collect the fees seems like a risk, and the only example our conveyancer could give was a scenario connected to a Freehold property that had no protections against service charges (unlike us).

      Whilst we would quite happily do what we need to do and even agree to pay for this variation to be applied, we fear the management company won’t agree, as they will be confident what our buyer is suggesting isn’t one and the same as what position we are in. If they remove these charges and their rights to hold people to account to pay the services charges how would the management company enforce this without some form of rights of protection for them in the deeds. We fear this will be relayed to our buyer, they will get cold feet and pull out. I fear if even our conveyancer doesn’t fully understand then we can’t hope to reassure nor explain to our buyer, and feel at a loss as where to go now.

      Comment


        #4
        The scheme you set out is certainly unusual. Without seeing the documentation I cannot really comment, but on the basis of what you say I think it more than possible that if I had been acting for you on the purchase I would have advised you not to proceed. Whatever the position, I am not sure than anyone can say anything useful because (as I think you realise) I cannot see the management company conceding to the request as they have no incentive to do so. The buyer and his conveyancer have to assess the matter as they see it. Unlike many case we have here it is not a question of the lawyer failing to get to grips with the law, but weighing up how difficult it might prove to sell.

        Comment


          #5
          Originally posted by Clara_Jones View Post
          Secondly, is it fair we should pay for this lease variation process - if the management company even agree to this (my suspicion is they wont agree because the fears of the buyer arent the same as our situation) ?
          This would be something you have to negotiate with any potential buyer.
          If your buyer insists that you arrange this, and pay, you have the choice of whether to agree, or tell them that they either buy the lease as it is or walk away.

          If no one will buy the lease as it is, you have to decide whether you are willing to pay for the lease to be altered (if you can even get it altered) in order to sell.

          Whether the potential buyer (or the solicitors) are being unreasonable is another matter - and if lawcruncher can't answer that, I certainly can't.

          Comment


            #6
            Here is the gov.uk website for guidance on rentcharge, which can be redeemed by freehold houses but not by leasehold houses :

            https://www.gov.uk/guidance/rentchar...y-is-leasehold


            Leasehold houses on 999 years lease and small ground rent, the leaseholder can make a compulsory purchase of the freehold title at around 18 times ground rent by application to FTT.

            Comment


              #7
              Thank you for your time reading and taking the time to reply all.

              It sounds like this is a case of risk; is our buyer willing to take the risk with rent charges (or in our case it’s a service charge and community initiative charge, not truly a rent charge), given that leaseholders have protections on how this unpaid bill can be recouped by the landlord (or freeholder, in our case the management company). This all feels very ‘what if’ given that as long as your bills are paid there is no risk of your home being repossessed. We are invoiced in good time, have multiple avenues to challenge any service charge we feel unfair, including with tribunals etc, which our management company clearly lay out in their terms on every invoice (aka what your rights are as a homeowner). We, along with most of the homes on the development, purchased the home with a mortgage and this was not an issue for our lender.

              I don’t believe the management company will agree to the deed of variation (I am unaware of the wording being requested as this has not been shared even when asked for) as it forfeits their right to recoup unpaid service charges, leaving them vulnerable. I hope their reply though explains to our conveyancer the other elements of protection in place for property owners here as leasehold owners, not freehold owners. I wish I could skip the conveyancer part and explain this in plain English to the buyer somehow so then at least we know they had the information as is, and make their decision based on a true picture of the situation involved.

              Apparently our buyer is open to this process continuing post completion - how would that even work? How could that possibly happen post completion? Either we own it or they do surely?

              I asked our conveyancer what other options are there if this Variation doesn’t work and she suggested perhaps indemnity insurance. Does anybody know if this would an option in this case please?

              Thank you

              Comment


                #8
                A mortgagee would normally pay any arrears if service charge (if served with a copy of any forfeiture proceedings ) the fear may be that they are not given sufficient notice - I have seen this requested many times - to resolve this a deed of variation where the landlord agrees to give much longer notice periods prior to taking action and serving it by recorded delivery on the lender may resolve the matter

                Comment


                  #9
                  Originally posted by sgclacy View Post
                  A mortgagee would normally pay any arrears if service charge (if served with a copy of any forfeiture proceedings ) the fear may be that they are not given sufficient notice - I have seen this requested many times - to resolve this a deed of variation where the landlord agrees to give much longer notice periods prior to taking action and serving it by recorded delivery on the lender may resolve the matter
                  Thank you for coming back to me on this. Don’t suppose you have any examples of text used in these scenarios do you please?

                  Would the variation of the lease need to apply to all properties on the development or can we just apply this to our property? I’d be loathed to have to be the homeowner on the development that ended up paying for a variation that other houses then benefited from. I’m assuming we can apply it to just our property as our title deeds are specific to our property?

                  Comment


                    #10
                    Property by property basis

                    PRivate message me and I will send over a deed I was involved with

                    Comment


                      #11
                      Why is it that the only person in the world that wants to buy your lease, is the current prospective purchaser, and there is no chance of selling to anyone else ( 60 Billion people )

                      Me, I would say......... one, or some, or all of these .
                      • Those are the terms of the lease, if you don't like the terms, look for another property.
                      • If you want the terms of the lease changed, bearing in mind that we don't want them changed, you ask the freeholder those questions, as it's the freeholders that make those decisions, not us. and freeholder that arranges lease changes / Deeds of variation.
                      • As we, the sellers, are happy with the current lease, and the freeholders are happy with the lease, therefore ALL costs to change the lease is the responsibility of the buyer to pay for, in advance.
                      • Do not expect the freeholder to agree to change the lease for just ONE flat.
                      • We can't change the lease, as we are not the freeholder, nor are we prepared to act as your agent to communicate with the freeholder, and as above, contact the freeholder direct.
                      • Don't expect the freeholder to grant a change of lease, as there is no reason to change just for one flat, as the lease is not defective.
                      • Thank you for your interest, but even if the freeholder agreed ( doubtfull ) the excessive time for all that to materialise is far too long for our liking.
                      • Thank you for your interest but we respectfully decline to sell to you, and have put the property back on the market.
                      Yes, I know a buyer cannot change the lease if they are not a leaseholder, and that you ,( Clara_Jones ) have to go through the hassle of getting the lease changed - which the freeholder will refuse to do.

                      Have you ASKED the freeholder if they would change the lease.?
                      They are the only ones who can, and the only ones that can tell you , yey or ney... Expect a Ney.



                      ..

                      Comment


                        #12
                        Thank you for the reply - on most, if not all of the above, I tend to agree. It feels very much like we are being put into a position that has no end date nor much likelihood of coming to the buyers desired end (the lease being varied) as we believe their fears are unfounded in the situation we are in, and we deem the risks associated to their fears being low, as did / does our mortgage lender. They seem concerned with resale value the most and are speculating how the situation will look well into the future, and it seems we as the current owners are being asked to take on the legal burden and potentially significant costs involved for 2,3 buyers down the line.

                        Our conveyancer so far has asked the management company for details on how we would go about this process and likely costs involved. We have said we won’t agree to anything until we know more information.

                        A couple of question, can a DoV on a lease be achieved for individual properties, or do all properties (we are all separate houses and all are billed for service charges separately) in the same development have to have their changed / agree to it even? I would be very loathed to take on this battle, and cost, on behalf of all my neighbours also, which would be just shy of 50 houses.

                        I believe the management company won’t agree, and if they do I can see it being a long drawn out process which would cause our conveyancing to come to halt. The part I find difficult to understand the mechanisms of how this would be achieved is our buyer has indicated they would be open to completing and this DoV being resolved after completion. I don’t understand how that could be achieved? Would they draft up some horrendous contract keeping us liable to the costs? What if the management company refuse it 6 months after completion, how would our buyer keep us liable for that, if at all? Surely either they own it or we do, and if they own it it’s a battle for them to take on not us.

                        Comment


                          #13
                          Originally posted by Clara_Jones View Post
                          A couple of questions,
                          Usually a lease gets changed before sale of property, I advised you to not be so foolish, so -- Tell buyer goodbye.

                          A buyer who does not own the lease cannot change the lease,so they could enter into a contact with the freeholder to change the lease once they own it. Therefore out of your hands, as no way should you look at changing the lease before you sell. so -- Tell buyer goodbye.

                          You make sure the freehoder agrees to change the lease after you have gone, therefore no comeback on you. HOWEVER, do not tell the frreeholder to go ahead, as you will still have problems when freeholders says "What's all this about, don't be so stupid, We have rules, and leases that thre is no rason to change, then buyer starts shouting at you. so -- Tell buyer goodbye.

                          Forget the other 49 houses -- not your problem, and no, a lease is a lease, and only yours would get changed, which you should not allow.
                          All leases would get changed only if a serious defect in the leases was found.

                          so -- Tell buyer goodbye.

                          Just tell the current buyer -- goodbye, and yes, lose some money ( conv + sols small fees ) but better that than 3 / 6 months hassle.

                          OR justlie and say, sorry freeholder is not interested Goodbye.

                          Get rid of this problem before you come back on here with more of the same problem.



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